The paper highlights the design of automatic generation controllers through optimal control strategy, for an interconnected hydrothermal system using a new performance index that circumvents the need for a load demand estimator. The dynamic performances of these controllers are analysed and compared with those obtainedthrough the usual performance index as that used by Fosha and Elgerd, considering a step-load perturbation in either of the areas. Attempt is made to suitably design the new optimal controller that can provide safe generation rate and reasonably good response.